~ Investment Strategy

Review of the Week’s News

US rallying on commodity sell-off and rising risk-aversion. EUR uptrend broken by Greek restructuring concerns. GBP continues to trend weaker; first rate hike now expected Jan 2012 (had been this month, earlier in 2011). AUD seems to have reached an uneven plateau. JPY rally continues and CHF remains in a volatile uptrend.

US equities remain at the base of a small pullback; Treasuries still rallying. Commodities generally remain at the base of the recent pullback, although coffee is still falling. Oil prices, though they have pulled back, remain high, with Brent at $111. Sugar continues to make what appears to be a long, round top.

S&P 500 bottom-up earnings expectations are still rising, but Eurostoxx 600 expectations have been downgraded. Forecasters have cut their expectation for US growth in 2011 from 3.2% to 2.7% in the past three months.

Newsflow:

Worries about the need for a Greek debt restructuring have become the markets focus even as European growth surprises on the upside. Inconsistent statements from German ministers are the trigger.

US debt ceiling talks take on a more sensible tone, with Boehner accepting a US default would be disastrous. August now seems to be the deadline.

Lee Kuan Yew resigns from Singapore’s cabinet after the ruling party wins “only” 60.1% of the vote.

People’s Bank of China lifts bank reserve requirements for the fifth time this year.

Commodities:

Global oil demand flat in March, IEA reports. High oil prices have started to dent demand in North America. Separately, US petrol stocks climb.

Sugar: International Sugar Organisation joins Kingsman and Czarnikow in forecasting a surplus for 2011-12. Kingsman predicts a surplus 4x greater than current estimates. Further price falls likely — a good commodity to short?

Corn: Optimal point for plantings is passing, with plantings likely to be delayed again this week by wet weather. Expected mean-reversion in prices this year may be tempered by falling yields, but we are still early in the growing season.

Wheat: More wet weather in the Upper Plains and Dakotas is forecast this week, delaying spring plantings further, even as the same weather system extends the drought in southern winter-wheat areas, damaging crops there. Again, this may temper mean-reversion in prices, but we are still early in the growing season.

WASDE report:

Corn and soybean ending inventories revised up; wheat unchanged.

Cotton production predicted up 8.8% on good Indian crop.

Corn acreage predicted up 5%, but market to remain tight.

Wheat exports to resume from Russia, Ukraine and Kazakhstan. Foreign corn supplies also expected to rise. Good season in North Africa likely to limit import demand.